Italy: What does ‘control’ mean for transfer pricing purposes?
A new ruling from the Supreme Court
The Italian Supreme Court has ruled that transactions between an Italian and a foreign company could be subject to transfer pricing rules if one business exercises a dominant influence (de facto control) over the other, regardless of the stakes owned (formal control).
As heard in a recent case (judgment no. 8130, 22 April 2016), an Italian company that lacked the resources to trade its own manufactured goods, appointed a San Marino legal entity as the exclusive distributor for its products. The San Marino legal entity owned 24% of the Italian company share capital.
The Italian tax authorities claimed that the San Marino entity, as exclusive distributor, de facto controlled the Italian entity. Therefore they applied the transfer pricing rules, claiming that part of the costs borne by the Italian company were not deductible as they had not been compliant with the arm’s length principle.
The Supreme Court upheld prior judgments from provincial and regional tax courts in favour of the tax authorities.
For more information, contact:
Gian Luca Nieddu or Federico De Rosa
Hager & Partners, Italy
T: +39 (02) 7780711